Solutia boosted on new deal with Monsanto; Calpine dips; Autos lower; Thornburg falls

By Stephanie N. Rotondo

Portland, Ore., Aug. 16 - The junk bond market took a hit Thursday amid a stock market that could not decide which direction it would go.

At one point, the Dow Jones Industrial Average plunged more than 300 points as news came out that Countrywide Financial Corp. had drawn $11.5 billion from its back credit line - the entire amount available under the credit facility.

"The bond market was savaged the whole day," a trader said, noting that there was once again lower volume.

"There're major headaches wherever you look," he said. Market players spent most of their day "putting out fires" instead of staking new positions.

Continued worries of hedge funds collapsing are also putting pressure on the market, and many are starting to see the rumors as credible.

"There are true worries that hedge funds are liquidating," the trader said.

"It was just an ugly day," said another trader. "And it started early - everything was off a couple points from the get-go."

"Most everything in high yield and distressed is down at least 3 to 5 points," the trader continued. "No one wants to buy anything."

"It's getting great," he said excitedly.

But while most names in the distressed world were down, there were some bright spots, such as Solutia Inc.

Solutia's bonds got better bid Thursday, as a Bloomberg report said the company had reached an agreement with former parent Monsanto Co. Under the deal, Monsanto's share in the reorganized company would be cut, with the remainder going to bond and equity holders.

A trader attributed Calpine Corp.'s losses in its bonds partly to a delayed reaction from news released Wednesday. While the company's statement that there were doubts about the company's ability to continue seemed a "non-event" in the previous session, the bonds dipped at least 7 points in Thursday's session.

Rumor seemed to be the catalyst for declines in the automotive sector. Names like Federal-Mogul Corp., Delphi Corp. and Dura Automotive Systems Inc. were all lower on the day, but traders could not say specifically why. Instead, many said market buzz was driving the debt lower.

Thornburg Mortgage Corp.'s bonds have remained particularly active in a low-volume market. But gains earned the previous day were edged out, as the bonds slipped lower. Though traders said the notes rebounded toward the end of the day, the debt was still weaker.

New deal brings better bids

Solutia's junior debt was better bid, as a new deal with Monsanto gave bondholders 2% additional new equity in the reorganized company.

A trader said the bonds had not moved much, however, adding he saw the 7 3/8% notes due 2027 at 72 bid.

Another trader said the bonds were up to 73 bid, 75 offered from 71 bid, 72 offered.

"That was a nice ray of sunlight," he said, pointing to an otherwise dreary market.

At another desk, a trader said he saw the bonds due 2027 with a 73 bid.

A Bloomberg news report stated that the bankrupt nylon and plastics maker settled certain environmental claims with its former parent. The agreement cuts Monsanto's stake in the company to 17% from 20%, giving the remainder to the bond and equity holders 2% and 1%, respectively.

Solutia's stockholders previously objected to the initial plan with Monsanto. In court filings earlier this month, the equity holders said that the deal "repeats the same theme that propelled Solutia into bankruptcy in the first place: a sweetheart deal that benefits Monsanto while permanently burdening Solutia with hundreds of millions of dollars in legacy liabilities, which it played no role in creating."

Calpine weakens

Power producer Calpine saw its debt and equity "shot down," a trader said, as the stock tumbled 54 cents, or 19.71%, to $2.20.

The trader said the 8½% notes due 2011 hit a low of 107 before finishing the day at 109 bid, 110 offered. He added that the bonds were at 114.

Another trader said the bonds were "off a little," in part a delayed reaction to the previous day's news regarding the company's ability to continue as a going concern. He pegged the 8½% notes at 109 bid, 110.5 offered, the 8½% notes due 2008 at 108 bid, 109 offered and the 6% convertibles at 95 bid, 97 offered.

Calpine said in an 8-K filing Wednesday that its ability to move forward was dependent on its ability to maintain and generate cash, as well as how much money - and how long - reorganization will take, among other things.

Autos driven lower

While rumors are circulating wildly in the overall market, a few linked to specific names in the automotive realm helped push bonds in that sector lower.

A trader said Federal-Mogul's bonds - which typically fall in line with each other - were "off pretty hard" at 81 bid, 83 offered. He said that was 2.5 to 3 points lower than the previous session.

The trader said he had not heard any news in that name, but he had heard a continuing rumor that there is "one big seller."

Meanwhile, Delphi's bonds were whacked, falling as much as 20 points on the day.

A trader said the 6.55% notes that were to have come due last year fell 20 points to a low of 84.5 before recovering to close at 92 - still 12 points lower on the day.

Another trader saw the bonds at 92 bid, 94 offered as well as the 6½% notes due 2013 at 91 bid, 93 offered.

The trader said Dura Automotive Systems' subordinated notes were also lower, with the 9% notes due 2009 at 2.5 bid, 3.5 offered.

"I had hoped they would be up," the trader said, citing rumors that the subordinated noteholders were trying to organize to address the subordination clause of the debenture. He said he had heard there was a possibility that the senior noteholders were going to make a proposal to the sub-holders, but none have been forthcoming.

"Maybe that contributed to the sell-off," he said.

The bankruptcy court overseeing Dura's case approved the sale of its Atwood Mobile Products unit Thursday. The company also won approval on its equity plan with Pacificor LLC, which will provide $140 million to $160 million for a rights offering.

All quiet on the Thornburg front

A trader saw Thornburg Mortgage's bonds quoted "pretty wide," just one day after the company's management expressed optimism at its ability to weather a credit crunch.

The trader said the 8% notes due 2013 were active on the day and closed at 65 bid, 68 offered. He said the debt fell to a low of 62 on the session, 8 points lower than the previous close around 70.

Another trader, however, said the bonds were up 2 points at 64 bid, 65 offered.

According to a source at the company, the real estate investment trust is in a silent period and is apparently gearing up to release an announcement next week.

Swift bank loan softer

Swift Transportation Co. Inc.'s term loan B traded down a few points around the open on Thursday but partially rebounded after company officials held a conference call to discuss second-quarter results with lenders, according to traders.

The term loan B ended the session at 85 bid, 87 offered, down from Wednesday's levels of 86 bid, 88 offered; however, in the morning one trader saw the paper trade as low as 85 and another trader saw it bid as low as 84 5/8.

"They definitely fell short year over year on both revenue and EBITDA, which is what I think jolted everyone yesterday," the second trader said. "Hearing today that that's what management expected made people feel a little better.

"Hoping to see a turnaround in the next few quarters but it's still a difficult environment for them. Demand is there but so many people are servicing them. There's a lot of competition."

On Wednesday, the term loan B had dropped to the 86 bid, 88 offered context from 91 bid, 92 offered as investors were able to see the company's second-quarter financial results through the Swift IntraLinks site hosted by Morgan Stanley.

At the end of July, the company announced that as of June 30, its cash balance was $171 million, of which $148 million was unrestricted, and credit available on its revolving line of credit exceeded $250 million.

Swift is a Phoenix-based truckload carrier.

Loan extension no help to Movie Gallery

Movie Gallery Inc.'s first-lien term loan dropped by a few points during the trading session despite the company's good news about its forbearance agreement, according to a trader.

The first-lien term loan ended the day at 79 bid, 81 offered, down from previous levels of 81 bid, 82 offered, the trader said.

On Thursday morning, the company announced that its first-lien credit facility lenders have agreed to extend their forbearance agreement until Aug. 27 from Aug. 14 regarding exercising rights and remedies arising from existing defaults.

Although this appeared to be a positive, many people were expecting this event, and with general market volatility, Movie Gallery's first-lien term loan ended up taking a hit, the trader explained.

Movie Gallery is a Dothan, Ala.-based video rental company.

Broad market mostly weaker

General market concerns and rumors flying everywhere about hedge funds collapsing prompted the broad distressed bond market to weaken.

A trader said Sea Containers Ltd.'s 7 7/8% notes due 2008 fell 10 points to 67. He attributed the loss to simply market pressure.

InSight Health Services Corp.'s floating-rate notes also felt the pressure, closing down 3 points at 87.5. MAAX Inc.'s 9¾% notes due 2012 fell 2 points to 44, and MagnaChip Semiconductor LLC's 8% notes due 2014 dipped 2 points to 59.

Fedders Corp.'s 9 7/8% notes due 2014 were also lower at 14 bid, 20 offered, which was called down a couple points.

Tembec Inc.'s 8 5/8% notes due 2009 slipped to 46.5 bid, 47.5 offered, while the 8½% notes due 2011 fell to 43 bid, 44.5 offered. The 7¾% notes due 12 were also deemed softer at 40 bid, 41 offered.

Elsewhere, Solo Cup Co.'s 8½% notes due 2014 were seen at 82 bid, 84 offered. Spectrum Brands' debt was called "off," with its 11¼% notes due 2013 at 81.5, down from the previous session at 84.5 bid, 86 offered.

Still, traders reported "some brighter patches," like Blockbuster Inc.'s 9% notes due 2012. Those were seen closing down 4 points to 82.5, which was up from the day's low of 80.

Sara Rosenberg contributed to this article.

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